Hydro One (TSX:H) and Avista (NYSE:AVA) on March 27 said that they have filed with the Washington Utilities and Transportation Commission an all-parties, all-issues settlement agreement in the merger proceeding between the companies.
The companies said that all parties, including commission staff, have agreed that the full settlement is in the public interest and should be accepted by the commission.
In addition to Hydro One, Avista and commission staff, the parties to the merger proceeding include the Public Counsel Unit of the Washington Office of Attorney General, The Energy Project, NW Energy Coalition, Renewable Northwest, Natural Resources Defense Council, Sierra Club, the Washington and Northern Idaho District Council of Laborers, the Northwest Industrial Gas Users and the Industrial Customers of Northwest Utilities.
The settlement includes financial and non-financial commitments, the companies added, noting that no costs associated with the transaction would be recovered from Avista or Hydro One customers.
The September 2017 applications for state regulatory approval of the merger included a rate credit of about $32m over a 10-year period across Washington, Oregon and Idaho, which amounted to an allocation of an approximately $20m rate credit in Washington. The companies also said that the settlement, if approved, would result in the allocation to Washington of a rate credit of about $31m over a five-year period.
In the settlement, Hydro One and Avista have also agreed to other financial commitments, including funding for low income participation in new renewables and the replacement of manufactured homes. As a result of the settlement, the companies added, financial commitments in Washington total about $44m. While negotiations with parties in the other states are still underway and will be resolved on a state-by-state basis, if the financial commitments in the Washington settlement were to be proportionally allocated to the other states, the total amount of financial commitments would be about $74m, which includes a commitment to an additional $1m rate credit in Alaska, the companies said.
The settlement agreement is subject to commission approval, the companies noted.
As noted in the settlement stipulation and agreement, Hydro One – acting through Olympus Equity LLC, an indirect, wholly owned subsidiary – and Avista last September filed with the commission their joint application for an order authorizing the proposed transaction whereby Olympus Equity would acquire all of the outstanding common stock of Avista, which would thereafter become a direct, wholly owned subsidiary of Olympus Equity, and an indirect, wholly owned subsidiary of Hydro One.
The settlement agreement filing included a master list of commitments in Washington, which noted, for instance, that Avista will seek to retain all current executive management of Avista, subject to voluntary retirements that may occur. That commitment will not limit Avista’s ability to determine its organizational structure and select and retain personnel best able to meet Avista’s needs over time, the filing noted, adding that the Avista board retains the ability to dismiss executive management of Avista and other Avista personnel for standard corporate reasons (subject to the approval of Hydro One for any hiring, dismissal or replacement of the CEO).
Also, Avista will maintain its existing levels of capital allocations for capital investment in strategic and economic development items, including property acquisitions in the university district, support of local entrepreneurs and seed-stage investments.
The filing further noted that Avista will continue to participate, where appropriate, in national and regional forums regarding transmission issues, pricing policies, siting requirements, as well as interconnection and integration policies, when necessary to protect the interest of its customers.
Of renewable energy resources, the filing noted that Avista’s non-fossil-fueled generation resources constitute more than 50% of its generation portfolio. Avista will commit to initiating a request for proposal with the intent of acquiring additional eligible renewable energy resources. The filing added that Avista will, for instance, commit to obtain about 50 aMW of expected energy from new eligible renewable resources by 2022.
In addition, the filing noted that Avista commits – and Hydro One agrees – to expanding access to transportation electrification for all customers.
Furthermore, Avista commits to provide home energy audits to 2,000 homes at $300 per home, over a 10-year period, in Washington. Hydro One will arrange total funding of $600,000 for that commitment, the filing added. With more robust data available after the installation of AMI, Hydro One and Avista agree to revisit that commitment to determine if the number of homes served could be expanded.
As noted in the companies’ statement, the transaction received approval from FERC in January, and from Avista shareholders last November. Hydro One and Avista continue to anticipate closing the transaction in the second half of 2018.
Applications for regulatory approval of the transaction are still pending with utility commissions in Washington, Idaho, Oregon, Montana and Alaska, the companies added. Approval must be obtained from the Federal Communications Commission. Also required is clearance by the Committee on Foreign Investment in the United States, and compliance with applicable requirements under the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as well as the satisfaction of other customary closing conditions, the companies added.